Forex Trading Broker Regulation

ForexNewsNow – The forex market makes up the largest financial market in the world and the largest unregulated market as well. No centrally located global body oversees or regulates trading on the forex market.

Nevertheless, many individual countries have regulatory agencies which oversee and regulate the forex market in their respective nations, largely as a part of overall financial regulation designed to protect individual investors and traders.

Why is Regulation in the Forex Market Important?

An important consideration when going over a forex broker list in order to select the best forex broker for your needs consists of finding out where the broker is based and what organization oversees their activities.  A foreign exchange broker based in an unregulated jurisdiction, especially one that is not your own, may not be able to be held accountable in the event of any dispute arising from a client/broker disagreement.

Although an online forex broker may be based in an unregulated jurisdiction, many reputable forex brokers based in unregulated areas strive to meet the requirements of foreign regulatory agencies and even register with them.  Registering with an agency based in another country is generally done in order to do business with clients based in that country.

Countries and Their Regulatory Agencies

The main countries hosting and regulating online forex brokers and their official regulatory agencies are as follows:

• United States – the United States forex market is regulated by the Commodities Futures Trading Commission or CFTC, and the National Futures Association or NFA. Both organizations keep a close eye on the retail forex market, regulating all online foreign exchange brokers based in the United States. In addition, currency brokers based outside of the United States must meet strict requirements to open an online trading account for a U.S. resident.
• United Kingdom – the UK regulates the forex market through the Financial Services Authority or FSA, which is the British equivalent of both the U.S. CFTC and NFA.
• Australia – the Australian Securities and Investments Commission regulates all financial services, including the forex market, in Australia.
• Switzerland – the Swiss have a number of private financial regulatory organizations, primarily designed to regulate banks and keep a watchful eye on money laundering. Nevertheless, the Swiss Federal Department of Finance is a government organization that makes up the official regulator of forex trading in Switzerland.
• European Union – each member of the European Union must regulate their local financial industry individually in conformation to the Markets in Financial Instruments Directive, or MiFD. Furthermore, the so-called “MiFD Passport” allows an online forex broker in one EU member nation to service retail customers located in other EU member countries.

The Goal of Forex Market Regulation

The aforementioned financial regulatory agencies charged with overseeing the forex market in their respective countries exist with the general goal of protecting the interests of retail traders and keeping the regulated financial institutions honest in their dealings with the public.

In pursuit of this goal, these regulatory agencies typically enforce capital requirements and also periodically examine currency brokers’ financial records in order to ensure compliance with regulations.

If a financial problem with one of these regulated foreign exchange brokers occurs, the regulators apply appropriate legal action to the situation. They also usually immediately shut down any suspected fraudulent forex broking operation, thereby aiding in the recovery of customer funds.

Why Choose Regulated and Registered Forex Brokers?

The principal advantage of dealing with a foreign exchange broker that is registered with an official regulatory agency such as the CFTC or the FSA, consists of the fact that a certain amount of legal recourse and official support is available in the event of an actionable disagreement arising.

Furthermore, dealing with a duly registered online forex broker will provide the trader with a certain sense of security that their online trading account funds will remain in relatively safe hands.

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